South Africa Cracks Down On VAT Fraud

by Robert Lee, Tax-News.com, London

20 November 2008

The South African Revenue Service (SARS) has decided to implement a range of additional security measures to safeguard South Africa's value-added tax (VAT) system from attempted abuse and fraud.

The new measures include more stringent verification of applications for VAT registration, investigations of existing VAT vendors who are under the turnover threshold and a review of risk measures for refunds.

A SARS statement explained: "South Africa’s tax system is based on self-declaration and depends to a large extent on the integrity of taxpayers to make full, accurate and honest disclosure and pay all tax that is due. The vast majority of VAT vendors are compliant and we thank them for making their fair contribution to the fiscus.

"However, monitoring of VAT registrations and refunds over the past six months by SARS has revealed a disturbing increase in attempted fraudulent registrations and other attempts to defraud the VAT system."

According to the tax office, a number of vendors with turnover of less than SAR20,000 per annum are registered for VAT despite being below the legislative threshold, while an increase in registrations by small businesses with zero or very low turnover has also been observed. However, attempts to follow-up these verifications by SARS have in many cases been fruitless because some VAT vendors have supplied false business and address details.

"This cannot be allowed and SARS has taken steps to secure the system from criminal elements and anyone within SARS colluding with them," the tax office warned.

Recent measures put in place by SARS to ensure "unscrupulous and criminal elements do not gain entry to the VAT system" include: requiring applications for VAT registration to be completed in person or by an authorised and registered practitioner; and requiring applicants to show proof of identity, bank particulars and the physical address of the business.

SARS is also considering implementing additional verifications including the use of biometric tests (fingerprinting of applicants) for VAT and other tax registrations.

Regarding existing VAT vendors, SARS is to suspend the accounts of VAT vendors who have declared under SAR20,000 turnover for the past 12 months in line with legislation.

Last week, SARS met with representatives of South African Institute of Chartered Accountants (SAICA) and the South African Institute of Professional Accountants (SAIPA) to discuss cooperation in finding ways to both protect the system while retaining its efficiency. "We are very encouraged by the support by these practitioner representative bodies in this endeavour," the tax service said.

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